When qualifying people for mortgages, banks typically look at how much debt a person has relative to their income. Called the debt-to-income ratio (DTI), this number should be—at maximum—43 percent, according to most experts. In some cases, however, you can have a DTI ratio much higher than that and still get approved for a mortgage. Here's more information about these exceptions.
Exception #1 – High Credit Rating
A good credit rating can open a lot of doors and allow access to a lot of opportunities, and qualifying for a mortgage while you have a high debt-to-income ratio is one of them. Your credit rating is an indicator of how likely you are to default on the loan because it's based on how well you've paid your bills in the past. To lenders, the higher your score, the more likely you are to pay your mortgage as agreed. Thus, a bank is more likely to forgive a high DTI if you have a premium credit score.
How high your credit score has to be to get this pass varies from lender to lender, however. You can get an FHA loan with an up to 50 percent DTI as long as your credit score is above 580. On the other hand, conventional lenders may require applicants to have credit scores above 700 to qualify with a high DTI. It's best to contact the banks you want to do business with to get their specific requirements for approval.
Exception #2 – Lots of Assets
Another way you may still get approved for a mortgage with a high debt-to-income ratio is if you have a lot of assets. The idea here is that you could liquidate those other assets to pay off your mortgage if necessary. In fact, in some cases, the bank may require you to pledge an asset as partial collateral for the loan to ensure they can collect something should you default on the mortgage.
Thus, when going through the mortgage process to buy a property, you must be sure to tell the lending agent about any additional assets you have that can offset your high DTI. For instance, if you have other property, investment accounts, or recreational vehicles, let the agent know about them so he or she can include them in their assessment of your ability to pay. Be aware that your loan may require manual underwriting, which can add a bit of time to the approval process.
For more information about getting a mortgage when you have a high DTI or assistance with finding the perfect home for you, contact a real estate agent.Share